In
2011, the Federal Energy Regulatory Commission issued Order
1000, which aims, among other things, to encourage the
development of "interregional" electricity
transmission projects-projects spanning more than one
geographic region. The interregional component of Order 1000
rested on the belief that certain interregional projects
might meet the needs of transmission providers and customers
more efficiently and effectively than regional projects, but
that prevailing incentives and coordination mechanisms did
not adequately encourage regional transmission providers to
pursue interregional projects.

To that
end, Order 1000 calls for regional providers to jointly
evaluate interregional projects. As part of that process,
providers must adopt cost-allocation methodologies for
dividing up the costs of a joint project. The primary goal of
Order 1000's cost-allocation provisions is to assure that
the relative costs borne by a particular transmission
provider be commensurate with the relative benefits gained by
the provider from the project.

This
case concerns one transmission provider's proposed
interregional cost-allocation methodology. Midcontinent
Independent System Operator (MISO), an organization that
operates transmission facilities on behalf of providers
across fifteen states in the Midwest, proposed to conduct
cost allocation for interregional projects using what's
called a cost-avoidance method. The share of costs allocated
to MISO under that method corresponds to the benefits to MISO
of its regional projects that would be displaced by the
interregional project. In identifying which regional projects
should be regarded as displaced by an interregional project,
MISO proposed to exclude any project that had already been
approved by the MISO board.

The
Commission rejected MISO's cost-allocation approach. In
the Commission's view, excluding approved regional
projects from the analysis would result in a failure to
account for the full potential benefits of an interregional
project. The transmission providers that make up MISO filed a
petition for review in this court. We deny the petition.

I.

A.

Electric
transmission in the United States is largely managed by
regional transmission organizations (RTOs) and independent
system operators (ISOs). Those entities operate the electric
transmission systems for a geographic region on behalf of the
local utilities (known as transmission providers) in a
region. MISO operates transmission facilities in the
midwestern United States on behalf of more than two dozen
transmission providers, petitioners here.

For the
past several decades, the Federal Energy Regulatory
Commission, acting under its authority to fix just and
reasonable rates under section 206 of the Federal Power Act
has issued orders requiring RTOs and ISOs to adopt practices
meant to encourage competition in the market for electricity.
E.g., Transmission Planning and Cost Allocation
by Transmission Owning and Operating Public Utilities,
Order No. 1000, 136 FERC ¶ 61, 051 at PP 1-5 (2011).
Order 1000, among the most recent of those orders, requires
ISOs and RTOs to consider and evaluate interregional
projects-projects embracing more than one region-and set
certain parameters for allocating the costs of those
interregional projects among providers. Id. The
Commission's aim is to induce the construction of
interregional projects "if such facilities address the
needs of the transmission planning regions more efficiently
or cost-effectively" than regional projects.
Id. at 111.

Order
1000's cost-allocation provisions seek to further that
goal. Establishing both a mechanism and set of principles for
cost allocation, Order 1000 calls for neighboring ISOs and
RTOs to reach agreements on cost allocation for interregional
projects that avoid free rider problems, that improve
transparency with respect to the costs of interregional
projects, and that otherwise align regional and interregional
planning processes. The guiding principle behind Order
1000's cost-allocation provisions is that the costs of
interregional projects should be "allocated in a way
that is roughly commensurate with benefits."
Id. at 178.

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